Commentary on how China and the world are adapting to each other -- or not.

November 15, 2012

China's new leadership: Econ reform yes, political reform no

Today's unveiling of the new Chinese leadership reveals a system that generates balances, however, fragile, involving factions, policies, and process.

We tend to over-emphasize the significance of personal factions and princelings, since neither tells us much about the policy preferences of individuals or the likely policy direction of the leadership overall. But to the extent that we do, there is factional balance in this group. Jiang Zemin apparently was able to insert more allies in positions on the Politburo Standing Committee (PBSC) than Hu Jintao, but Hu's man, Li Keqiang is #2, a spot higher than usual for Premier, and ahead of supposed Jiang ally, Zhang Dejiang. But the wider Politburo has several folks who served in the Communist Youth League or are from Anhui and could be considered allies of Hu, most importantly, Hu Chunhua (Party secretary of Inner Mongolia) and Wang Yang (Party secretary of Guangdong). And some have worked closely with both Jiang and Hu, such as Wang Huning, who was originally brought to Party center by Jiang, but has served as head of Party's policy research office under Hu. And although Xi is surrounded by supposed Jiang and Hu accolytes, he is the top dog, and he immediately got Hu's seat as Chair of the Central Military Commission. Hu looks like the loser, but it wasn't a blow-out.

Whatever we think about any one individual or factional ties, we are seeing some interesting broad trends in the group. The average age of Poliburo members is unchanged, but the trend of growing diversity in educational backgrounds has continued. Engineering technocrats no longer dominate the body. Even majoring in Chinese literature isn't an obstacle to getting to the top.

Some of the disappointment I've heard about the new group is that the two most likely advocates of serious political reform, Li Yuanchao and Wang Yang, didn't make it to the PBSC. But you'd have to beyond optimistic to believe the CPC top leadership is at all serious about democratization. That is not in the cards no matter who is in the PB. There's not a Gorbachev among them. We'll see a range of reforms to improve how this system works (budget transparency, income reporting, more efforts to rein in corruption), but all of these tactics are being done to make this system work better, not prepare China to move toward another (multi-party democratic) one. If you're skeptical they can make this system work better, they're going to try and prove everyone wrong. Either they'll succeed, or there will be a political meltdown.

There has been some talk about "institutionalization" of the succession process and elite politics. Yes, if this means efforts to secretly negotiate an outcome minimally acceptable to all powerbrokers, and forcing anyone 68 or older into official retirement. But beyond that, things appear much more fluid. Bo Xilai was brought down with a sledge hammer for apparently covering up a murder and being corrupt, and it is certainly possible opponents of Wen used the foreign media (NYT) to tar him for having a wealthy family. Negotiations were not neat and orderly and appear to have lasted through October. And many of the final decisions are inconsistent with recent practice: 1) The PBSC went from 9 to 7 members; 2) The premier's rank was raised from #3 to #2 in the Party hierarchy; 3) Xi assumed the Central Military Commission chair immediately rather than at a future plenum a year or two later (as Jiang and Hu did in 1994 and 2004); and 4) The number of women on the Politburo rose from 1 to 2, a positive but unprecendented development.

I suppose someone could say all of this is consistent with "flexible" institutionalization, but that would be an excellent example of "conceptual stretching."

Despite the Party's likely continued tight control on the political wheel and the lack of institutionalization, I expect more balance between encouraging market mechanisms and industrial policy. We should see sustained, though incremental economic reforms, which would be an expansion of trends begun over the past year: liberalization of interest rates, continued bond market and stock market reforms, gradually opening the capital account, loosening prices for commodities and energy, and reducing monopolies for SOEs. At the same time, we should be under no illusion that industrial policy's days are numbered. To the contrary, we will continue to see extensive intervention in most areas of the economy, particularly for "strategic emerging industries (SEI), particularly for SEIs, as the government is not about to have faith that the market alone will push firms to invest in R&D and focus on moving up value-added chains.

Most refreshing, though far from Obama-like, is Xi Jinping's style. When he addressed the media, he spoke in non-Marxist terms about how he views the country and what his goals are. He made zero reference to his predecessors -- Mao Hua, Deng, Jiang, or Hu, and he only mentioned "Socialism with Chinese Characteristics" once. There was even some varying intonation in his voice, and he had a genuine smile. Goodbye Robot Hu!